Aerial view of the Turkish-flagged “Polarnet” ship carrying grain from Ukraine at Derince Port, Kocaeli, Turkiye, August 8, 2022.
Omer Farouk Cebeci | Anadolu Agency | Getty Images
The continuing Russian invasion of Ukraine is causing a worldwide shift in the grain trade – which billions of individuals feed on each day – and this yr’s harvest in Ukraine could fall by as much as 50% in comparison with the pre-war period.
Each Ukraine and Russia were amongst the world’s top producers of commodities reminiscent of wheat and barley before the war broke out in February 2022. Nevertheless, because of this of the conflict, US wheat and corn futures prices hit their highest in a decade (with one benchmark wheat contract reaching an all-time high) and caused volatility world wheat prices for a yr. Prices stabilized in 2023, having fallen by around 13% since the starting of the yr.
“Trade flows change and fluctuate, they all the time have,” said Andrew Whitelaw, co-founder and director of Episode 3, an agricultural evaluation firm. “While 20 years ago Russia was not a major exporter of grains… They’ve been grown for the last 20 years [and] Ukraine and Russia have now turn into leading exporters.”
And while last yr’s crops and exports of cereals reminiscent of wheat from Ukraine were still significant despite the war and the closure of ports on the Black Sea, the quantities collected and shipped this yr are prone to decrease.
The Black Sea Grains Initiativean agreement negotiated by the UN in Turkey to securely get ships out of Ukrainian ports was prolonged in March by only 60 days – a discount from the previous period of 120 days.
Whitelaw described last yr’s wheat harvest in Ukraine as “pretty good” and “absolutely improbable” in Russia, but said Ukraine’s harvest is prone to fall by around 20% in 2023 as farmers planted fewer crops.
“This yr there are things like – in Ukraine – no access to finance, no access to fertilisers, no fuel, no labour, but additionally the price of grain in Ukraine is admittedly low. So the incentive for farmers to plant is lower,” he told CNBC over the phone.
“We’re seeing smaller acreage or areas dedicated to these crops in Ukraine, which means that a greater impact of that is prone to be felt this yr, from the fundamentals of supply and demand [perspective] than last yr.”
Over time, Ukraine’s losses could have to be made up elsewhere, including from Russia itself, but with more emphasis on the United States, Canada, Brazil and Argentina.
Aakash Doshi
Citi research
Actually, data from the Food and Agriculture Organization of the United Nations suggest that 20-30% of Ukraine’s winter wheat acreage last yr is not going to be harvested this summer as a result of fuel shortages.
Aakash Doshi, who’s head of Commodities, North America at Citi Research, said Ukraine’s grain harvest and exports this yr could fall by as much as 50% from pre-war levels.
In accordance with data from Citi Research, Ukraine had a record corn harvest in 2021 of 42 million metric tons (mmt), and the bank estimates that this may decrease to 21-22 million tons in 2023/2024.
For wheat, the 2021 harvest was 33 million tons, in accordance with Citi Research, and the forecast for this yr “might be 16-17mm,” Doshi told CNBC by email.
He said that in addition to crops, exports may also decrease. “Grain flows from Ukraine should decline in volume, but not as much as direct production declines as domestic consumption is weak. 2023/24 Grain exports from Ukraine (corn + wheat) may fall by 27-30 million tons, which means a decrease of 15-18 mm from 2021/22,” he added.
A Polish farmer during a protest on April 12, 2022 against Ukrainian grain imports, which lowered grain prices in Poland.
Attila Huseynov | Sopa Images | Light Rocket | Getty Images
Currently, there’s a surplus of Ukrainian grain in the countries of Central Europe, which causes a rift with countries reminiscent of Poland, Hungary, Bulgaria and Slovakia.
Falling prices sparked protests by Polish farmers this month, in addition to the resignation of Agriculture Minister Henryk Kowalczyk. On April 7, his successor Robert Telus said grain exports from Ukraine to Poland could be limited and stopped “for now”. Reuters report.
In the long term, Doshi sees opportunities to export grain from North and South America to the Middle East, North Africa and Asia, and if yields are good, from Australia to East Asia.
“In other words, Ukraine’s losses could have to be made up elsewhere over time, including by Russia itself, but with more emphasis on export surpluses from the US, Canada, Brazil and Argentina,” Doshi said.
Agricultural analyst Whitelaw also said the market is prone to shift, including from Russia. “Trade flows could have to vary, and there aren’t so many places where you may get large quantities of grain to switch the volumes that Russia [providing]. And really, all of it comes right down to… countries in South America, the United States, parts of Europe and Australia,” he said.
World food trade
War in Ukraine has pushed up food prices, with inflation above 5% in greater than 80% of low-income countries, in accordance with data world Bank figurines.
But while export restrictions from Ukraine have had an impact on food prices, rising energy and fertilizer costs are prone to have a fair greater impact, in accordance with research by a team at the University of Edinburgh led by Peter Alexander published in February. The study suggests there might be as much as one million additional deaths in the Middle East, Sub-Saharan Africa and North Africa if fertilizer prices proceed to be high this yr.
In the long run, the picture is complex. In accordance with Alexander, senior lecturer at the University of Edinburgh’s Global Academy of Agriculture and Food Systems, climate change causing extreme weather is already damaging the food system. But how which may develop shouldn’t be clear, he told CNBC: “The impact of future extreme weather conditions … drought, heatwave, flooding, is admittedly not well understood.”
A key risk is stopping grain production at several sites without delay, Alexander added, in what’s often called “multiple granary damage.”
“There’s definitely a possibility that we’ll see this kind of event in the future, which could have really negative consequences for quite a lot of people,” he added.
In late February, UK supermarkets restricted customers’ purchases of some fresh fruit and vegetables as a result of shortages.
Matthew Horwood | Getty Images | News Getty Images
The aspects affecting prices and availability of products and food in general are many and varied – bad weather in Morocco and Spain were blamed for the UK fruit and vegetable shortage in February, but additional Brexit formalities were also cited, in addition to high energy prices.
Ways to forestall food shortages around the world are also not straightforward, in accordance with Alexander, there are various “competing narratives”. For instance, locating food chains may not help.
“The rationale we now have a globalized food system, and the reason food has turn into increasingly cheaper over the past many years, is because … a competitive advantage [means] we produce food where it’s easiest to provide, where it requires the least input… If we begin to import all the things more locally, it should actually be less efficient as a food system,” he said.
“For instance, in the UK we’re self-sufficient in wheat, but we’re still subject to world wheat prices,” he added.
In accordance with Alexander, higher food prices aren’t necessarily a nasty thing. “As a substitute of attempting to keep food prices artificially low, or food prices that do not reflect all costs… possibly we are able to create healthier, more sustainable food, we are able to subsidize it for everyone,” he suggested.
Reducing meat consumption in developed countries may be an option. “We’d like a fairer and more efficient food system, which, from a Western perspective, probably involves a change in food plan,” Alexander added.
One other debate is how much grain must be used for biofuels and the way much for food supplies. There’s grain in biofuels used to provide ethanol, which is mixed with gasoline to cut back emissions.
Reducing the amount of grain used to make ethanol by 50% in the US and Europe would “compensate for all lost exports of Ukrainian wheat, corn, barley and rye,” in accordance with research firm World Resources Institute in fast published on April 1, 2022, roughly five weeks after Russia invaded Ukraine.
“We still have large amounts of grain around the world that aren’t used for food… in our industrial processes, ethanol, biodiesel and some of these products. Whitelaw said.